The Securities and Futures Authority (SFA), part of the Financial Services Authority (FSA), yesterday unveiled a horrifying tale of financial chicanery when it expelled the former London Metal Exchange (LME) ring dealer Brandeis (Brokers), until last year a subsidiary of the French aluminium producer Pechiney.
Brandeis, a founder member of the LME, agreed to pay £1.75m in compensation to Herbert Black, a Canadian metals trader who was the victim of the misdeeds and Brandeis's biggest customer at the time – in 1996 and 1997. The firm is also paying £317,568 towards the SFA's costs. This follows damages of £3m ordered by the LME's arbitration panel.
The SFA found Stewart Penfold, who was the Brandeis copper dealer until September 1996, "not fit and proper" and it has required him to pay costs of £5,000. Robert Swain, the company's aluminium dealer in 1996 and 1997 and senior member of its LME floor team, has been suspended from the LME Register of Representatives for two years and fined £25,000 plus £10,000 costs.
Mr Black claims Brandeis owes him up to $40m (£28m), while Brandeis is still seeking to recover alleged unpaid trading debts of more than $12m from Mr Black and his companies, known as the Black Customers.
The dry language of the SFA judgement is unable to conceal a tale of grotesque corruption at Brandeis. It says: "On frequent occasions in 1996 and 1997 Brandeis deliberately mispriced the Black Customers in respect of their copper orders. Brandeis frequently profited substantially from the deliberate mispricing of the Black Customers' orders, at the Black Customers' expense. In particular Brandeis overcharged the Black Customers by charging them prices which did not reflect and were higher than the prices at which their copper orders had been executed; Brandeis did not deal with the Black Customers' orders fairly and in due turn; and Brandeis did not allocate orders fairly.
"In addition, on a number of occasions in 1996 and 1997, Brandeis took advantage of confidential information in that: Brandeis traded ahead of the orders of the Black Customers and subsequently allocated tonnage to the Black Customers at prices higher or lower than the prices at which Brandeis itself had traded; and Brandeis allocated tonnage to the Black Customers from its own book at prices higher or lower than Brandeis had transacted the executions in the market.
"Further, on occasions in 1996 and 1997 Brandeis deliberately misused confidential information relating to the intentions and orders of the Black Customers. In particular, Brandeis disclosed the Black Customers' intentions and orders to Brandeis proprietary traders; disclosed the Black Customers' intentions and orders to certain third parties; traded ahead of the Black Customers for its own benefit or for the benefit of others; misused information as part of its mispricing of the Black Customers' orders."
Brandeis held ring-dealing-member status up to January 2000, when it left the open-outcry floor after Standard Bank London, part of South Africa's Standard Bank Group, purchased most of its customer accounts and trading positions from Pechiney. It is no longer an LME member, having given up its status in January.Reuse content